You Borrow $1,000 at 16% Per Year and Proceed to Buy

question 29

Multiple Choice

You borrow $1,000 at 16% per year and proceed to buy Asset XYZ for $1,000 in the cash market. This asset pays $10 quarterly. You then immediately sell a futures contract at $1,025 requiring delivery of asset XYZ in three months. What is the net profit or loss from your strategy of selling the futures contract after borrowing money to buy the asset ?

• A) $50.
• B) $10.
• C) -$5.
• D) -$10.

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Definitions:

Theory Of Mind

The capacity to recognize and assign mental states such as beliefs, intentions, desires, emotions, and knowledge to oneself and others, while grasping that others may hold beliefs, desires, and intentions distinct from our own.

Formal Operational

A stage in Piaget's theory of cognitive development where individuals gain the ability to think abstractly and logically.

Secure Attachment

A strong and healthy emotional bond between a child and their caregiver, characterized by trust and a sense of safety.

Reason Abstractly

The cognitive ability to think about concepts, ideas, and principles that are not physically present or tangible.